As you can As we already know, venture capital is an industry with a high failure rate.
Standard & Poor’s recently reported that bankruptcies of private equity and venture capital portfolio companies are reaching their highest numbers since 2010and these include companies that raised over $1 billion in venture capitallike Vice Media.
In this sense, it is unfortunate that we still do not hear enough venture capitalists talk about their mistakes, or at least not with the same frequency with which they indulge in self-congratulatory speeches.
However, in those cases where venture capitalists talk about failure, you may often hear them repeating reasons such as an unpredictable market shock or “black swan” event, bad timing, wrong leadership team. , co-investors who do not support them or a poorly designed business model. that ended up being unprofitable.
While these concepts are useful for a cautionary tale in an MBA case study and often do, in fact, impact returns on investments, the large number of non-economic mistakes made by venture capitalists due to their nature human being is seriously underestimated. Given the current liquidity crisis, I set out to understand these blind spots and transform them into practical advice for entrepreneurs actively raising funds. There are many, but today I will talk about three of them, which have cost investors a lot of money and are essential for anyone who is planning to present their startup to an investor to know about.
Many investors are more likely to support a founder with whom they feel a personal connection.
This is true even if your numbers and product are worse than those of a founder they consider less likable.
When a moment of human connection happens, it’s hard to ignore. Therefore, if we forge this bond with someone, we will automatically trust that person more.
The large number of non-economic mistakes made by venture capitalists is seriously underestimated due to their human nature.
Many reasons can lead to this link. Maybe they also play golf or soccer, are alumni of the same university we went to, or have a similar sense of humor. It’s hard to predict. However, what is undeniable is that by seeing the newly met individual as one of “us”, we are already lowering our defensive barriers. We feel safe in his presence and are more likely to feel comfortable investing in his company.
On the other hand, if the person feels like a stranger, the amygdala in our brain is activated and our survival instinct comes into action. In the “us versus them” concept that we all form in our minds, they are “them”; Therefore, our brain says, we better be cautious.
Most venture capital funds have multiple partners and their personalities vary widely. This is done intentionally to help the fund connect with a more diverse base of entrepreneurs and counteract these potential biases. So, in any fund you approach, understanding more about the human side of different investors will help you know who to turn to. Before pitching to a VC, take the time to learn more about them as human beings. Once you’ve studied them this way, you’ll be able to get an idea of who they would click with and approach them accordingly.
I can share with you examples of how this can be done with our team. For example, Joel is one of our partners and he prefers active, passionate, high-energy founders. On the other hand, Saagar is more likely to resonate with those founders who are scientists or tech experts and can delve into the technological side of a startup. Then there is Ruslan, who melts when the founder is very strategic and at the same time can be detail-oriented. And of course, there’s me, who loves entrepreneurial founders with a huge pirate spirit.
